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Indonesia: Support for coal development
through World Bank DPLs
Indonesia – Climate Change
• Indonesia is highly vulnerable to climate
change impacts, including:
– Threats to food security, agricultural & coastal
zone productivity, and water availability
– Increase in water- and vector-borne diseases
• Puts development and poverty alleviation
gains at risk.
Indonesia – Climate Change
• World’s largest thermal coal exporter
• World’s third largest emitter of greenhouse
gases (GHG), mainly due to deforestation
and peat fires
Indonesia – Climate Change
• GHG emissions per capita are growing faster than
GDP per capita
• Current energy growth path relies on increasing
contributions from carbon intensive sources - coalfired power.
• Unless there is a shift from the current government
plan, IEA (2007) projects Indonesia’s fossil fuel
related GHG emissions could triple by 2025
Current Government Energy Growth Plan:
Fast Track I & II Power Projects (under development)
Year adopted
Power source
Coal
Gas
Geothermal
Hydropower
Total
2006
2010
Fast Track I Fast Track II
Total
Total
Percent of
(MW)
(MW)
Projects Generation Generation
14,611
3,672
84
18,283
71%
560
1,300
4
1,860
7%
440
3,867
46
4,307
17%
1,174
3
1,174
5%
15,611
10,013
137
25,624
Overview of World Bank Involvement
WORLD BANK
SUPPORT
INDONESIAN
GOVERNMENT
COAL DEVELOPMENT
World Bank:
Infrastructure
Development
Policy Loans
(2007-2010)
PPP Framework
providing industry
subsidies
Purukcahu Cangkuang
Railway
World Bank: Loan
to IIGF of $30
million
World Bank:
$480 million
standby faciity
for IIGF
IFC: Transaction
Advisor
Indonesia
Infrastructure
Guarantee Fund
(IIGF):
Guarantee of $34
to CJPP
Guarantees in
pipeline for other
projects
Sumsel (South
Sumatra) Mine-Mouth
Plants (600 MW and
1200 MW)
Central Java Power
Project (2000 MW)
World Bank Infrastructure
Development Policy Loans
• Four I-DPLs covering 2007 to 2011 totaling $850 m
aimed at roads, water, and electricity
• Support to GOI infrastructure development plan,
including the Fast Track power projects
• Framework for public-private partnerships (PPP):
– Indonesia Infrastructure Guarantee Fund (IIGF)
– Indonesia Infrastructure Financing Facility (IIFF)
Indonesia Infrastructure Guarantee
Fund (IIGF)
• Guarantees for infrastructure projects under
the PPP scheme, including Fast Track
power projects
• Key to obtaining finance
• World Bank $480 m standby facility and
additional $30 m IIGF loan (FY2013)
Indonesia Infrastructure Guarantee
Fund (IIGF) – Coal Projects
So far:
• Central Java Power Plant – 2,000 MW ($40
million guarantee)
• Kalimantan - Puruk Cahu-Bangkuang Coal
Railway (for exports)
• 1,200 MW Coal-Fired Mine-mouth Sumsel
Power Plant 9
• 600 MW Coal-Fired Mine-mouth Sumsel
Power Plant 10
Central Java Power Plant
• IFC Transaction Advisor:
– analyze project fundamentals (grew from GOIproposed 800 MW to 2,000 MW)
– promote and secure project to investors
– prepare PPP contract
Indonesia Power Sector PPP
Framework
• PPP framework provides government incentives
including:
–
–
–
–
–
–
–
VAT tax exemptions,
import duty exemptions,
income tax rate reductions,
accelerated rates of depreciation,
land tax exemptions,
building tax exemptions,
the IIGF guarantees
• Subsidies to private investors for power projects
whether fossil fuel or renewable.
OP8.60 Review of Potential Impacts
• Inadequate Identification of Impacts
• Despite DPL support for energy
infrastructure based largely on coal:
– OP8.60 Review concluded “Generally, policy
actions supported by the operation do not have
significant adverse impacts on the environment.”
OP8.60 Review of Potential Impacts
• Environmental review focused mainly on electricity
tariff reform – not guarantees for coal projects –
thus concluded positive
• “Potential negative effects include changing the
natural landscape, increased emissions of
greenhouse gas and other pollutants due to
increased fossil fuel based electricity generation
capacity, …” but the DPL would address this by
strengthening the government’s EIA capacity.
OP8.60 Review of Potential Impacts
• If the Indonesia DPL policies and institutions
enabling big coal projects did not qualify, it
is difficult to understand when a DPL would
be considered by the Bank to represent a
potential for significant negative impacts
• All Coal Power Plants are category A
projects, if this DPL were subject to
Safeguard OP 4.01, it would be a category A
DPL
Local opposition to
IIGF supported projects
• Central Java Power Plant
– Lawsuit against the Batang regent for making a
bylaw for the project that contradicted
regulations to protect the Marine Natural Park
– Multiple protests have been held by thousands
of residents who insist that the power plant will
harm the environment and threaten their
livelihoods
Central Java Power Plant
• If it is built, it will pump 10,8 million tones of
CO2 into the atmosphere annualy
• It will also release 226 kg of mercury each
year
• It will also release 16200 tonnes of SOx,
20200 tonnes NOx, and 610 tonnes of PM
2.5 each year
Local opposition to
IIGF supported projects
• Kalimantan - Puruk Cahu-Bangkuang Coal
Railway (for exports)
– More than a dozen Central Kalimantan-based
organizations oppose the coal railway based on
environmental, social, and economic concerns.
– Railway construction will accelerate
deforestation and undermine goals of Central
Kalimantan as a REDD+ pilot province.
Conclusions
• World Bank Indonesia Infrastructure DPLs initiated
policies and institutions that promote coal
development in Indonesia
• Instead of guiding Indonesia – already the world’s
largest coal exporter – onto a low-carbon
development path, the Bank’s infrastructure
program has fortified a coal-intensive future
• OP8.60 environmental review did not adequately
identify potential DPL negative impacts
Recommendations
• Withdraw the Bank’s financial backing from the Indonesia
Infrastructure Guarantee Fund (IIGF) unless the IIGF
stops support for the Central Java Power Project and all
other coal projects.
• Ensure that the Bank’s Energy Directions’ limit on coal
financing is comprehensive and applies to all forms of
support, including development policy loans, financial
intermediaries, and advisory services.
• Safeguard OP4.01 - DPLs should be subject to
environmental and social risk categorization based on a
robust screening process followed by an Environmental
and Social Assessment (ESA) for category A DPLs (like
Indonesia)